Can you imagine Allstate Insurance Company running an advertisement explaining that it tries to deduct labor costs as depreciable items when you make a homeowners claim? Allstate runs television ads trying to warn against “cheap” insurance but fails to disclose that it instructs its claims adjusters to cheapen its insurance product when it comes to paying its customers’ insurance claims.

Most, but not all, insurance companies sell “replacement cost” insurance which is truly not replacement because the small print in the policy allows, but does not force, them to only pay the “actual cash value” of a claim until you actually replace or repair the damaged property. Some insurance companies sell true replacement cost insurance and fully pay replacement cost coverage immediately after a loss. Chubb and AMICA are examples of companies that honestly advertise and pay on a replacement cost basis.

I was always taught that an insurance company could only depreciate the physical cost of materials as they age to determine actual cash value. Some insurance companies are now challenging this longstanding property insurance concept, and some have even changed their small print to allow a loophole and depreciate labor.

Merlin Law Group recently filed an amicus brief on behalf of United Policyholders on this issue. We attached a 1982 publication to support our position that property insurance adjusters were historically taught to depreciate only physical costs and not labor. Labor was taught to be a cost which cannot be depreciated because labor does not suffer wear and tear and does not become obsolete.

Some insurance company claims managers for some companies have their creative insurance lawyers argue the opposite and against their customers’ interests to depreciate labor. Allstate and other insurers are obviously doing this. These insurers and their agents should be honest and warn their customers about this claims adjustment tactic which cheapens the insurance they sell. Unlike Allstate, many insurance companies treat their customers fairly and do not depreciate labor.

United Policyholders is a wonderful organization and the best in the country at watching out for policyholder interests. We happily volunteered our expertise and time, free of charge, to help with this brief and explained to the court how United Policyholders advocates for policyholder interests in cases like this:

UP submits that its participation and briefing will assist the Court in answering the question before this Court that has not yet been definitively answered in Ohio. The issue involved in this case – depreciation of labor and other non- physical items in the context of actual cash value adjustments of homeowners’ claims – has significant ramifications for Ohio insurance policyholders. When insurers reduce claim payouts by depreciating labor, and other non-physical cost items, they are failing to meet their duty to indemnify insureds for a necessary cost of restoring insured assets to pre-loss conditions. This is an area of law in which UP and the undersigned attorneys submit it would be useful to the Court to allow the insurance policyholders’ perspective to be heard.

As an advocate for insurance consumers around the country, UP has a vital interest in the outcome of this case. Its brief will assist the Court by setting forth viewpoints otherwise not advanced that should be considered by the Court.

The undersigned counsel for UP have significant experience in first-party property insurance litigation against major insurance companies, such as Allstate Indemnity Company, and the eight affiliated companies that are involved in this appeal, and honestly believe they will be able to assist jurists analyzing the insurance issues of this case and their public policy implications in a way that compliments and dovetails with the arguments raised by counsel for the parties. Counsel for UP is retained pro bono, and will accept no money for their legal work in this case.

If you are being shortchanged by insurance companies that advertise they fully pay claims but then act differently, please do not hesitate to reach out to a Merlin Law Group attorney for a free consultation. You can also research other claim recovery issues and learn about policyholder rights by using the search function of this blog.

Quote For The Day

Advertising is legalized lying.
—H.G. Wells

  • rogerpoe

    Like a sales tax factor, labor is a separate cost component of a physical loss.

    Actuarially – Neither sales tax or labor “depreciate” over time.

    They carry along in time by their own values weight, and are not affected by physical wear and tear.

    • Stephen Sarasohn

      Labor depreciates too. If you have to repaint your building every ten years, the material and the labor have to be replaced at the end of that period. If the paint job is 5 years old, the life expectancy of the paint and the labor are half used up. Surely there’s no physical wear and tear to the labor but it’s value is half gone. If the labor doesn’t depreciate, how much is the labor from the first paint job worth on the day you apply the second paint job? There’s no sales tax on real property but the sales tax on personal property would follow the ACV. If something has an RCV of $100 plus 7% tax and it depreciates by 20%, the ACV would be $80 plus 7% tax on the $80. The ACV should be enough to buy a used one. You’d only pay tax on the $80 if you bought a used one.